Why The Dell Foundation Is Betting Big On Social Entrepreneurs

By Ben Paynter. Source: Fast Company.

Experts within the philanthropy sector should consider funding fresh ideas from social entrepreneurs as much (if not more) than massive grants aimed at traditional programmatic solutions, many of which still struggle to make a huge impact on the world’s most challenging problems. That’s one key finding from a new report from the Michael & Susan Dell Foundation, which was formed by Dell Technologies founder and CEO Michael Dell and his wife, Susan, and works in the U.S., India, and South Africa to improve the lives of children suffering from urban poverty. To that end, the Dell Foundation just committed another $1 billion to its endowment, in part, to fund just those types of ventures.

Since its inception in 1999, the Dell Foundation has spent freely, doling out a total of $1.3 billion in grants and loans, while countering the standard industry practice of just giving away the federally mandated minimum of 5%—a super-low threshold that many funders don’t exceed because they’re busily investing the rest of their endowment in the traditional market to recoup that expenditure. For many years, Dell has given far more than that—more like 15%—including impact investments in social entrepreneurs that, at least in the early stages, are the sort of allocations that can’t be expected to bring much return on their investment. In other words, the foundation has always been willing to make risky investments, giving away money that it may not be able to earn back, in order to incubate businesses and solutions that could save everyone in the space more money in the long term as they prove out or become sustainable.

Earlier this year, foundation endowment was spent down to around $646 million. Before refreshing it, the Dells and the foundation set out to formally identify where exactly the industry was heading by surveying nearly 700 different philanthropic players, from NGO experts to government officials and nonprofit leaders. As their resulting report, entitled A Philanthropist’s Guide to the Future, shows, more than 60% of respondents think social entrepreneurs will be crucial for developing the next wave of effective solutions to major societal problems. Most think foundations need to be more willing to invest—and consistently—in the somewhat “riskier” strategies that those groups might employ.“A lot of people are afraid to take risks because in philanthropy money only follows success,” says Susan Dell, the foundation’s cofounder and board chair, referencing the penchant for cause groups to chip away problems with demonstrable results rather than make bold plays that might cost their funders money. Dell would like to see that thinking shift. For every dud, there might also be an Ujjivan, which last year had arguably the most successful IPO in India’s history.

The new look at philanthropy comes at a time when many foundations are rethinking how they do business. In May, the Center for Effective Philanthropy released a report highlighting how 11 different organizations have converted to a limit-life format, opting to spend down their endowments to make a larger immediate impact on the causes they support. In April, the Ford Foundation, a classic minimum giver, adopted a new model, diverting $1 billion of its endowment over the next decade solely to mission-related investments.

Dell’s program-related investments do much the same thing, if on a slightly smaller scale. In addition to $76 million support-structured scholarships (that’s yielded nearly double the national graduation rate for low-income students) and the creation of a data-sharing platform for South Africans to see what’s working in various school districts, a large sum has gone to startups working directly with the at-need communities, often with completely novel ideas for what might work within the space. That includes early backing for Ujjivan, a service for the unbanked in India, and iMerit, a data services company providing tech training and jobs to the less educated within that same country. They’ve also channeled money to Reach Capital, which has invested in educational tech companies, among other ventures.With their new cash, the foundation plans to double-down on that market-driven philosophy. “We’re really looking to ramp up our investment in social entrepreneurs,” says foundation director Janet Mountain, who foresees a “new era of philanthropy” from these kinds of companies changing the world as they achieve sustainable growth.

To drive that point home, the foundation is releasing a set of “Social Impact Principles” based on its own experiences and the findings of the new report. (“IF IT DOESN’T WORK, TELL EVERYONE.” reads one intentionally all-caps koan. “Your outcomes, both good and bad, are opportunities for others to learn and do better. We all win when we learn together,” adds a short explainer.) You can find more about the report and principles here and watch a live stream of their announcement, along with past lessons and predictions and what’s next for the industry, from an event called The Dell Perspective: The Future of Philanthropy starting at 7:30 p.m. ET on May 11.